What the chancellor has done to pensions and benefits

Both benefit claimants and the wealthy have taken a hit in tax and benefit measures announced in today's Autumn Statement.

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It could have been worse. Both benefit claimants and the wealthy have taken a hit in tax and benefit measures announced today by chancellor George Osborne in his Autumn Statement.

In attempts to plug the £10 billion gap (see 'No miracle cures') in government finances he has, as expected, cut tax relief on pension savings and limited rises in out-of-work welfare benefits – normally increased in line with inflation – to 1%. With inflation running at around 2.5% a year the lowest income families will effectively see a 1.5% reduction in the spending power of their benefits.

But the starting point for higher rate tax is to be increased by 1% and personal tax allowances are to go up by £1,335 in 2013-14 to £9,440 putting an extra £266 a year into workers’ pockets.

Pensions

As expected the chancellor has lowered the maximum investment in pensions which attracts tax relief from £50,000 a year to £40,000 and cut the ‘lifetime limit’ – the maximum value of pension savings – from £1.5 million to £1.25 million. Together these changes are estimated to save £1 billion by 2016-17. A transitional 'fixed protection' regime will be introduced for those who may be affected by the reduction in the lifetime allowance.

Justifying the cuts the chancellor pointed out that 90% of all pension pots at retirement are worth less than £1.25 million with the median pension savings at just £55,000. In other words it is only the richest 10% who will be affected by this reduction. He also mentioned that the average annual contribution to a pension scheme is just £6,000 so the vast majority of pension savers will be unaffected by the annual limit of £40,000 – way above what most people can afford to save and considerably more than average earnings of around £25,000.

These latest cuts follow a reduction in tax relief on contributions in 2010 from £255,000 to £50,000 so high earners have lost out substantially since the coalition came to power. The pensions industry will be relieved however that Osborne didn’t go further and remove higher rate tax relief on pensions altogether on the grounds that it is the wealthier savers who benefit most from this generous tax concession. This would have saved up to £7 billion a year.

Most important, the reduced limit on contributions does not take effect until April 2014 so there is still plenty of time for wealthier taxpayers to get a huge subsidy by making the maximum payment for the current 2012-13 tax year and for 2013-14. For a 50% tax payer this subsidy is worth £25,000 on a £50,000 contribution.

The good news is that those in retirement who have seen their income from pension drawdown from Sipps (self-invested personal pensions) curtailed will enjoy an increase in the maximum income that can can be taken with the limit rising from 100% of an equivalent annuity purchase to 120%.

Are you a high earner? Read Lorna Bourke's update on how the pension allowance changes might affect you.

Benefit cuts

While pension savers won’t like the cutback in their generous tax concessions, it has been demanded as a quid pro quo by the Lib Dems in return for accepting reductions in the welfare budget. From April 2013 out-of-work benefits – but not pensions, carers allowances and disability benefit – will be increased by just 1% rather than rising at the rate of inflation, which would have meant an increase of around 2.5%. In effect this is a real cut in spending power of around 1.5% and will save an estimated £2.5 billion.

Child benefit rates are frozen in 2013-14 but will increase by 1% in 2014-15 and 2015-16. Tax credit disability elements are increased in line with inflation as measured by the consumer price index (CPI). But other elements are either frozen or will increase by 1% in 2013-14. All rates are increased by 1% in 2014-15 and 2015-16. The guardian's allowance is increased in 2013-14 in line with CPI.

The chancellor’s justification for this effective cut in benefits is that while wages are frozen for many employees – in particular large numbers of public sector workers – it is wrong to increase benefits in line with inflation which would reduce the incentives to work.

With benefits eating up an ever-larger proportion of government spending it is one area where big savings can be made. Social security benefits, including the state pension and tax credits, are forecast to cost £202.9 billion in 2012/13 accounting for 30% of total public expenditure, according to the Office for National Statistics.

Housing taxes and benefits

Wealthy homebuyers can breathe a sigh of relief that there has been no increase in stamp duty at the top end of the scale and no ‘mansion tax’ or increase in the higher bands of council tax which the chancellor dismissed as being too expensive to administer and unlikely to raise any extra revenue.

And there was good news for unemployed homeowners. Support for mortgage interest, which pays the interest on mortgage payments on loans up to £200,000 after 13 weeks of unemployment will be extended for another year. However, it has not been reformed and the largest number of claimants are pensioners. This is because a partner’s income is taken into account if you are an unemployed claimant and this disqualifies most.

Tax thresholds

Most tax thresholds, including higher rate tax, capital gains tax (CGT) and inheritance tax (IHT) which has been frozen at £325,000 since 20009 will increase by 1% in 2015-16 – well below the rate of inflation to which they used to be linked. The increase is still some way off so there won’t be any celebrations here.

For the 2013-14 tax year the p[ersonal allowance – the amount of income you can receive tax free – will increase to £9,440 and the basic rate limit will be set at £32,010. For 2014-15 and 2015-16 the increase in the higher rate threshold – the starting point for 40% tax – will be capped at 1%.

For 2013-14, there are no changes to the percentage rate of contribution for class 1 and class 4 national insurance contributions (NICs) but there are changes to all of the thresholds and limits.

Putting away £40,000 a year without paying tax on it is still way too high. Its a tax loophole for the very-rich and super-rich. I expect these limits will be cut further in years to come, but in the meantime, lots of wealthy directors will be stashing away more tax-free cash, so reducing tax returns in the short term.

"Putting away £40000 a year without paying tax on it" exemplifies a misunderstanding of the tax system as it relates to pensions. The scheme rests on front end tax relief and back end taxation on receipt of the pension (whereas contributions to ISAs attract no tax relief at the time of contribution, the match within the system being that income from the ISA is not taxed). Of course, there can be a mismatch between the rate of tax relief applied to the pension contribution and that applied some years down the line on receipt of the pension but the way the 40% rate is heading I would confidently predict that in a few years' time virtually everyone will be taxable at 40%!

I am sure this blaming the rich and seeking to end all tax exemptions (it’s not loopholes, it’s part of the finance act as set down by parliament) is similar to “the Jews are burning the Reichstag Building". In other words, blame anyone else for our misfortunes as long as I am left alone.

If Government do not want any tax exemptions they should change the laws accordingly, but beware the consequences. I suppose all those who think this is a good idea will be happy to see their ISA allowances end, no new forestry in the UK and the collapse of the UK film industry, to name but a few effects this will have.

what is not realised by the above commenter or the media is that the annual contribution allowance for the few of us still in final salary pension schemes consists of the total of employee's and employer's contributions PLUS yearly increase in 'value' of pension. This can quickly add up to £40000 even though the employee himself is only contributing (and getting tax relief on) about £10000, or less than £1000 a MONTH not a week as the previous poster said.

Why don't we all join the Polly Toynbee lefties and just claim benefits in our old age

F the government, F the Libdem thieves, F trying to save for a decent pension

Why have I spent a lifetime grafting so that this stupid lot can spend my taxes on £10 Billion RING FENCED 'Overseas Aid'

Can't understand what all the fuss has been about. After all the hype and dire warnings from 'the experts' in the press and BBC, Osbourne seems to have done very little today, as usual, it's all tomorrow or maybe the day after. After so little has been done I find it hard to believe that we are in such a mess.

Martyn, my guess would be down to lobbying on the part of the financial services industry, after all who would bother with all the restrictions and costs involved with pensions unless they were getting higher rate relief, ISAs are a more flexible option. Although I agree with you, such a move would and should in my view wipe out the whole industry.

All tax relief on pensions contributions should be abolished..The 40 billion saved could then be used to increase the basic State Pension for the poorest so that it includes an allowance for Local Housing Costs and Council Tax, but only receive it in full if they do not have any other pension which has been subsidised by employer contributions. Otherwise take this into account and only pay the difference. There would then be an incentive for people to save if they were able to and they would not have to be enticed into a pension scheme which have generally been discredited in recent years.

Its only going to get worse. I can see the logic in austerity and cuts but its 99mph in the wrong direction. If you want to prosper then you have to invest in the youth and jobs. You need to cut taxes and get people spending. Thats just the way it works.Its time for new brains and a plan B.

Strange that any financial sites that I use have not made a comment that from the 13/14 tax year the isa limit has gone up to £11500 certainly no big deal but the gem was for me that from 13/14 A.I.M. stocks can be included in an isa for the first time.

At £200bn welfare and state pensions are a cost difficult to justify in this "age of austerity" it is patemt nonsense that the State's employees should be better off in their retirement than their counterparts in the private sector.

Anon 1 - The article has an error; basic rate tax will apply on taxable income up to £41450 (13/14). Lorna has deducted the personal allowance from this figure to get to her £32K figure - which is wrong as the personal alloawance is first deducted from all your income (take home pay, gross interest, dividends, etc.) to arrive at your TAXABLE income.

Tricky - Public Sector Pensions are defined benefit (final salary) schemes. So the rules apply equally to them as they do to Private Sector final salary schemes

Brian Mclean, yep you are right. Yet annuity rates have fallen. Which means that, to restore our pension income, the rate needs to be more than 120% of GAD. The campaigns to restore 120% have been effective, what chance of getting more?

What a waste of time - is there a problem or what because this Autumn statement gives the impression that hardly anything needs to be done.

Abolishing higher rate tax relief would have saved 7 billion a year!

Then why the hell didnt he do it?

Previous post: "The employee is only contibuting £1000 a month not £1000 a week"

Thank you for the correction but it changes nothing - its still £1000 a week contribution in total and will still equate to a pension pot of over £1m over a 30 year working life. Why should the rest of us pay to subsidise a pension that is 5 times bigger than we could possibly hope for? (those in the private sector anyway!)

If the government was serious about cutting red tape and simplifying the tax system, the y would stop this tinkering with tax rates and allowances every year which produces nothing but more complication and get the inland revenue (old name) into more messes and mistakes.

The chancellor would be wiser to completely wipe the slate clean and put into effect the simplest and most effective system that will help the lower earners as well as be fairer to the high earners. Everyone will know exactly what they owe in tax and be glad to pay- no more silly schemes to avoid tax. Think about it :

One level of personal allowance at £15,000 pa for all age groups.

One level of personal tax of 35% to include NHI contributions. Remove employers NHI contributions. Restrict relief on total pension contributions (employee+employer) to 30% of salary with top limit of £30,000 pa.

Self-employed and pensioners to be taxed the same as employees. Why shouldn't they if they make use of the NH as much as or more than employed people? The only possible and fair concession for pensioners is the option of a 'couple allowance' of £30,000 to avoid hardship.

Corporation tax applied to UK profits at 22% with a minimum of 2.2% of actual UK turnover. Remove all silly, legal loopholes and most capital allowances. The saving from not paying for employees NHI contributions will more than compensate.

Simplify CGT and inheritance limits and taxes to single levels.

Finally, stop all annual bonuses to public sector workers. There is no justification for rewarding people who are only doing the job they were employed to do (most official job descriptions demand Herculean effort so how can anyone outperform?) instead, a scheme should be gradually introduced whereby under performers are encouraged to train and improve their grasp of job skill and public duty. Those who outperform should be promoted rather than given a bonus.

A bonus does not reward ability but encourages exagerating achievements against easy or bogus targets, buttering up to the boss and a host of other problems like jealousy and unhealthy office relationships.

My sketchy calcs indicates that the tax take from the above measures should increase by about 10% with a similar reduction in the cost of collecting it (ie public sector workforce can reduce by 10% without reduction in efficiency). A significant part of the higher tax take will be due to the willingness of a large number of wealthy individuals and large companies to pay the (reduced) tax due rather than mess about with complicated avoidance schemes.

Can we have some comments from tax experts and others with in depth knowledge please. Thank you for your attention.

John Powell, to appeal to the great unwashed and for the benefit of the paid, salaried employees, e.g. siliband, Balls, Cooper, Harman and husband awaiting the sex change operation, he came top of the list of an all female constituency, but I haven't seen any reports that he was awaiting surgery for the change!

This sort of approach to the obvious will, unfortunately, never be adopted by any government as it is far to simple and uncomplicated. Governments love complexity as it means they can justify their empire-building to deal with all the red tape they knowingly build into all the laws and regulations they create in the first place, not to mention all the highly-paid posts they create and reserve for their cronies.

Ramsey J, great idea, I was thinking along the same lines, but also integrating the benefit system for example by reintroducing child tax allowances and abolishing other forms of family related benefits and paying all benefits through the tax system. Interestingly following the foster parent fiasco, I went to the Ukip website to check out their policies to see if the furore was justified. Blow me down but they had stolen a number of my policies already. As a result I joined - it seemed easier than setting up my own party!

A great post form Ramsey J in response to a pathetic budget from a very sorry coalition Government. Ithink the time has come for Cameron and Osborne to take a bow and step aside in favour of some new blood. The rediculous politicing is getting us absolutely nowhere bowing to the idiotic Liberals. Why do they hold back from confronting the Labour party in plain English- the ordinary man in the street has no idea that Balls and Brown have left our country little better off than Greece with a bloated welfare State we cannot afford. They seem to have forgotten that it was the finacial services sector that was a main contributor to our country's revenues. Now cheap political shots time and time again have seen that sector wrecked as much as the trade unions killed off mining and manufacturing.The current coalition is not fit for purpose hapless clueless and out completely out of touch wih reality. triple A rating? we are not worth it with this lot in charge.

J. Ramsey's ideas are very much along the right lines but it would need courage to see them through. One need only imagine what the Ed Balls of this world would say about a tax rate of 35% that applied to people earning £15000 or £150000. He would start with the new 35% basic rate and then increase the rate for people earning over £50000 with further increases for earnings over £100000 and so on. That's fair, isn't it? Then he would say that it is also unfair for someone earning £16000 to have to pay tax immediately at the rate of 35% on the first £1000 over £15000 and even on the next couple of thousand pounds and he would introduce a kind of tapering relief with a lower introductory rate of 10%, gradually going up to 35% and ending at 50% for high earners. And he would do all this by appealing to the Labour Party's client base as supplemented by the Lib Dems,etc. Result? We're back on the old system before we know where we are.

That's where the courage comes in. Someone would need to take on the job of explaining how a flat, low rate of tax achieves a better result for all of us than merely sharing the misery of getting a roughly equal portion of a tiny cake.

"Public Sector Pensions are defined benefit (final salary) schemes. So the rules apply equally to them as they do to Private Sector final salary schemes."

I don't get it. How do the reductions in tax relief on pension contributions apply to these? I am not being awkward, I simply don't understand what you are saying here. As there is no actual pot, is there really a nominal reduction somewhere in the calculations? Please enlighten me.

I listened to the Work and Pensions debate this morning and heard Peter Bone and other Tory M.P's trying to make propaganda about the State Pension 'Triple Lock'.

Of course, M.P.s don't lie, so I will call them 'factual mis-statements'.

They boasted of their compassion for Pensioners, which they claim was absent from the Labour Government. They bragged about the floor of 2.5% increase in the State Pension which will operate this year.

IN FACT, THIS MEASURE WAS INTRODUCED BY LABOUR NEARLY FIVE YEARS AGO.

Then they boasted about the 'earnings link' .

This was first introduced by Labour many years ago and was abandoned by a previous Tory Prime Minister (You've guessed it ...Hilda Thatcher).

The third lock is, of course, the inflation link. Again, this was introduced by Labour many, many years ago as an RPI link.

The Tories have downgraded this to CPI. The difference in recent times has been just under 1% but this differential could rise if house prices and rents rise. CPI does not include housing costs.

The Tories have boasted about the 'greatest ever cash increase' in the State Pension (note the carefully crafted words....CASH increase.) This cash increase is purely the result of inflation over many years, mainly under Tory governments, so there is no credit due there.

In his first 'Emergency Budget' Gorgeous George removed £25 from the heating allowance. He didn't announce it in his speech. It was found later in the printed statement.

Additionally, Pensioners have been excluded from the much vaunted increase in Personal Allowances.

I have heard Cameron say that State Pensioners will be £15,000 better off under the Tories. This was repeated in the debate today by a Tory M.P.

In truth, Sate Pensioners are, and will be, worse off under the Tories, both in cash terms and real terms.

I hope that those bloggers who work for Conservative Central Office will bring these facts to the attention of the P.M.

We wouldn't want these gross mis-statements to turn into lies would we???

James, thank you for your informed response, can you clarify the statement that pensioners are excluded from the increase in personal allowances, are the new allowances going to be age or work related?

DD thank you, I didn't understand redundant OT's response either. My point really was that the capital values particularly of unfunded public sector pensions of all types should be disclosed, I think there would be more millionaires out there than we think!

I don't suppose it takes long to become a millionaire when receiving a public service pension of £60,000 per annum (after the pension commencement lump sum), if one is not already. It is no wonder that public spending is high when such promises for the future were made by the last government.

I agree, a bit more transparency on this subject would be interesting.

James O'Connell, replying to the debate for the Labour Party, says that Mrs Thatcher's government abolished the pension link to earnings. Fair enough, but Mrs Thatcher has been out of power for 20 years! One might assume from what he wrote that the intervening Labour Government restored the link. They didn't. If we're going to have comments on the current Statement, please let's have relevant ones. The last thing we want is some Coalition supporter citing the sins of Harold Wilson's Government.

Thanks to all who agreed with my previous suggestions re-flat rate of tax and simplification of system. I thought I should clarify some of the finer points behind my proposals.

A significant part of including NHI contributions for all whose total income (not only earned earnings) exceed the personal allowance, and removing employers contributions is that it will give employers ample space to adjust salaries/ rates of pay, etc to address any unfairness that will result from such a radical reform of the taxation system.

The government will not need to and must not try to make adjustments like taper relief or similar devices to disadvantaged groups or those who may benefit under the new system (very high earners). On the latter point, the lower tax for very high earners will encourage them to pay the tax due rather than use tax avoidance schemes (which cost them money). Logic and experience from other countries tell us that the lower, flat rate will yield more tax overall from this group of earners than the any multi- tier system has ever done.

Other advantages in removing employers NCI contributions include simpler admin for all, much less abuse and cheating of the system, and much fairer contribution to the NH by all including the self- employed and pensioners.

Someone with an income of £250,000 pa will pay £82,250 total. If, say, 10% of the 35% charge goes to the NH, that equals £23,500 By contrast an average earner at £25,000 will pay 3,500 total tax of which NHI is £1000. The person who makes 10 times the average earnings pays more than six times as much tax. These are ball park figures and the actual NH take will be subject to other policies.

This new taxation system will also fit in well with the planned flat state pension (from 2014/15?) which will do away with all the stupid 2nd state pension etc that have accumulated through the years and which have been the biggest cause of misunderstandings, and shortfalls people have suffered as they retire.

The treatment of child and other benefits should also be done simply through the taxation system to remove most of the abuse and errors in administering the diverse and often conflicting range of benefits.

Politicians should resist the temptation to tinker every year with the system to lean one way or another to address imagined unfairness or to 'punish' high earners, most of whom deserve every million pennies they make.

I am attempting to produce a more accurate picture of the effect of a flat rate taxation and whether it will have any chance of being left simple for at least 25 years before any major changes. I will share it with this forum if it makes sense!

James, we currently have a system which is far worse than a flat rate system, the wealthy have a myriad of methods available to them to legally avoid tax, these are simply not available or worthwhile for the low to mid income earners, leading to a very inequitable tax take. Nobody has yet mentioned how unfair the Vat system is to those on lower incomes increasing again the relative tax take on the low paid. At least a flat rate of income tax with no 'allowances' reduces the need for the wealthy to avoid tax and will make the overall take more fair.

If the basic allowances and child tax allowances are large enough the tax take on the lower earners would not rise at all.

Maybe the flat tax is being advocated here by those who know most about how frequently taxation is avoided. Take Starbucks who are now voluntarily contributing their corporation tax, while at the same time legally avoiding it! Where will this end?

Take it easy. No one is decrying the hard working and underpaid workers. This is a discussion of how to make the tax system fairer. You are talking about revolution, or adopting some political system akin to communism. But these aspirations and experiments have run their course. Look at the former communist regimes and how quickly since they abandoned their 'vision' some (clever?) people have worked (very hard or very little?) to become billionaires.

I wonder how many of us, winning 50M on the lottery will change colour and start looking for tax avoidance schemes? I would. Therefore it is better if the system taxes me fairly rather than gives me licence to pay experts to avoid a large tax bill. Look at all the tax havens around the UK. You cannot change human behaviour. Short of making 30m individual tax rates (for the 30m workers in the UK), any taxation system will have different degrees of unfairness to most people. Very similar to the council tax.

If you have difficulty understanding the discussion and offering constructive comments, please stay out of it.

Given the somewhat diffiult financial situation we now find ourselves in I can hardly believe that we are even taking anything devised by the last Government as prudent. Labour's social engineering experiments have been all but catastrophic for this country and it beggars belief that Ed Balls still has a job andthtathere are some that seem to think he did a pretty decent one last time around! What is fair about five percent of the working population paying 65% of all the taxes? Sowhat some people earn a little more hey that's life soe are good at football some at music. Lets have a fair society in the true sense and not some trumped up idea about the kind of society dreamt up by the likes of Marx. A fair society is where everyone pays something not one where alarge number believe and are led to believe that they are owed a living as a matter fact.

Some people in this column seem to think that if the rich and powerful decide to avoid tax this is a good reason to stop levying tax.

I can't see the logic in that.

Either HMRC should get their finger out and demand more resources be given to tax collection or we should change to a system that can't be avoided.

NO, IT WOULD NOT BE A FLAT TAX SYSTEM, WHICH WOULD BE OF GREATER BENEFIT TO THE IDLE RICH. I FLATLY REFUSE TO BELIEVE THAT THE RICH ARE GENERALLY HARDWORKING AND THAT THE POOR ARE FECKLESS IDIOTS.

In spite of your convoluted arguments, there is no doubt in my mind that all you are doing is trying to rationalise a position which is illogical and has been dreamed up with the sole purpose of reducing the tax burden on the rich. Correction: Tax is not and never will be a BURDEN on the rich. They could pay ten times as much tax and not notice it.

Think about this: Did you know that it is an offence to deliberately arrange your affairs with the sole purpose of avoiding tax??

If you doubt this, just ask HMRC, if you dare.

As to alternative systems, a wealth tax would be a good additional tax.

I would even countenance this being a flat rate!!

As to corporate tax, I have long advocated a turnover tax, again at a flat rate.

If the the sales take place in the UK then this is where the tax will be paid.No avoidance would be possible.

There is one other point that tax avoiders might care to think about.

If you are resident, or normally resident in the U.K., you are liable for tax on your WORLDWIDE income. Again HMRC will confirm this.

Our present tax system IS complex and for good reason.

There is an old saying, " The answer to a complex problem is always clear, simple and wrong".

As to the points you make, it is not, of course, " an offence to deliberately arrange your affairs with the sole purpose of avoiding tax". You appear to be confusing evasion with avoidance. To do what you suggest would, I accept, be to invite a challenge from HMRC but such a challenge would not necessarily succeed and, indeed, would definitely not succed if you were talking about investing in an ISA or a pension.

As to a turnover tax, we already have something like that in the form of VAT. One difficulty, amongst many, that a simple turnover corporation tax would encounter would relate to companies that incur losses (say, in a start -up situation when an initial investment does not produce an immediate return or when a company runs into difficult trading conditions). They would be required to pay tax without having the wherewithal to do so.

As for multinationals which operate over a number of jurisdictions, they inevitably have to pay parts of the organisation for licences, research, brand name recognition, etc. That applies to UK multinationals like, say, Glaxo which incur heavy expenditure on research, the reults of which are then applied around the world with the users (often Glaxo subsidiaries which are incorporated in different countries) paying fees for this research by way of fees. As can be readily imagined, the jurisdictions within which the subs are incorporated then start challenging the level of fees paid to the UK!

It's actually not that easy to devise a system of taxation that fits in with cross border trading activities and there is often an undignified fight between and amongst the various jurisdictions lookig for their share of the tax cake.

James, taxation should be a question of legality not morality, the Starbucks situation is insane. If for example you are faced with two perfectly capable and acceptable plumbers to repair your boiler and one is VAT registered and the other is not, my guess is that you are going to 'deliberately arrange your affairs with the sole purpose of avoiding tax'. Someone self employed may take a holiday during March to avoid higher rate tax. A Company Director may wait until April 6th to pay himself dividends for the same reason. These sort of decisions are taken every day, where is the line, are you saying that these decisions are illegal or immoral?

Our tax system is incredibly complex, every threshold, different type of tax, different tax rate and allowance or relief offer the opportunity to make these sort of decisions and encourage people to do so. Our present system is complex simply because it is long established and has been tinkered with endlessly and not for any good reason at all!

Why anybody still bothers about governmental controlled pensions and their changing rules on how much one can take out or not, etc, is beyond me, as by now you could have been a stock & shares ISA millionaire drawing a tax free income from your annual (PEP and) ISA contributions and your, in many cases, tax-free perpetual re-invested returns if you had invested in the right high quality dividend paying shares when they were historically undervalued.

The reason that higher rate tax relief on pensions has not been abolished altogether is probably that politicians, senior civil servants and similar public sector workers should then have to pay tax on the benefit-in-kind that they enjoy on receiving a pension entitlement that they have not fully paid for through their own contributions.

They would not wish to draw attention to the high cost of this benefit, which is borne by the taxpayer.

Paul2, I feel you are quite correct in your assumptions, but better to save £37 billion by abolishing all tax relief rather than just higher rate tax relief which only saves £7billion. The amount of tax relief given over the past two decades probably accounts for the whole of our public national debt and annual borrowings would halve if the tax relief were abolished. To be honest, for the basic rate taxpayer. pensions are a total con and they would be much better off having their employer contributions added to their wages, so that they can invest whatever they could afford to save in ISA's.. For me, returns on cash ISA's and Stocks and Shares tracker Isa's have been almost the same over the past decade, so let tax payers decide which is best for them. Auto enrollment has been recently introduced. Another con. How can the poor afford to pay this when they are already on the breadline? It is just the same as an increase in NIC and no doubt, when the time is right, basic State Pensions will be reduced .

If the governemt want everyone to save more they must make the savings environment fair to all. pay a proper State Pension to include a Local Housing allowance, , but not to those who are already receiving subsidised pensions from their employers. To double minimum State Pensions would only cost about £10 billion if those who already have have pensions subsidised by employer contributions and tax relief were excluded to that extent.

An effective route forward could be to close the Defined Benefit pension schemes of those in public office who make these pension decisions. Once their self-interest changed, they would then be able to both see and act on the facts that are already clear to the rest of us. They would then address the problem, probably quite quickly.

Roger Bailey's points are interesting if the figures are correct, it would make a great deal more sense to double the state pension which would then make it sufficient to live on and abolish all tax relief on pension contributions and save significant amounts of cash too.

Another way to look at this is that this relief is merely another subsidy to the financial services industry, after all they are providing a product that no sane person would buy without any tax relief, you have to be a bit bonkers to buy it with only basic rate relief.

Do the government want everyone to save more? They pay lip service to it, but there are no moves to back it up, isn't part of the problem the fact that they need us to spend our wayback into growth while trying to pretend that they want us to save.

Successive Governments have followed the l;ate Captain Bob's lead in raping the private sectors pension entitlements. In the interestyof fair play it is now time to treat the State's pension coffers the same way and abolish defined benefit for the State.

It is not difficult to understand that anyone would want to hold on to defined benefit pensions funded by someone else. What is outrageous is the heads in sand, and the desire to pretend that private sector has a better deal. It is funny how only the heads of banks and multinationals are referenced, not the redundant 50 year-olds who can't afford to pay into their own schemes and are constantly being told that they haven't paid in enough...

It is not only that the private sector pensioners are told that they didn't pay in enough but also that the rules, before Gordon Brown relaxed them, prevented those that wanted to from paying in enough.